Question 1

Consumer surplus
A)is the amount of a good that a consumer can buy at a price below equilibrium price.
B)is the amount a consumer is willing to pay minus the amount the consumer actually pays.
C)is the number of consumers who are excluded from a market because of scarcity.
D)measures how much a seller values a good.

Accepted Answer

Consumer surplus is the difference between the amount a consumer is willing to pay for a good or service and the actual price paid. It represents the additional benefit or value a consumer receives beyond what they actually pay for a good or service.

Question 2

The welfare of sellers is measured by
A)consumer surplus.
B)producer surplus.
C)total surplus.
D)price.

Accepted Answer

Producer surplus is the difference between the price at which a producer is willing to supply a good and the actual price they receive. This measures the welfare of the sellers and their profit from the transaction. Consumer surplus measures the benefit received by the buyers, total surplus is the sum of both producer and consumer surplus, and price is just the amount paid for the good.

Question 3

When a buyer's willingness to pay for a good is equal to the price of the good, the
A)buyer's consumer surplus for that good is maximized.
B)buyer will buy as much of the good as the buyer's budget allows.
C)price of the good exceeds the value that the buyer places on the good.
D)buyer is indifferent between buying the good and not buying it.

Accepted Answer

When a buyer's willingness to pay for a good is equal to the price of the good, it means that the buyer is indifferent between buying the good and not buying it. At this point, the buyer is not willing to pay more than the price of the good, but if the price were any lower, the buyer would have already purchased it. Therefore, the buyer's consumer surplus is zero at this point.

Question 4

Which of the following will cause no change in producer surplus?
A)the imposition of a nonbinding price ceiling in the market
B)buyers expect the price of a good to be higher next month
C)the price of a substitute increases
D)income increases and buyers consider the good to be inferior

Accepted Answer

A nonbinding price ceiling does not affect the equilibrium price and quantity, so there is no change in producer surplus.

Question 5

A consumer's willingness to pay directly measures
A)the extent to which advertising and other external forces have influenced the consumer's preferences.
B)the cost of a good to the buyer.
C)how much a buyer values a good.
D)consumer surplus.

Accepted Answer

A consumer's willingness to pay reflects the value that the consumer places on the good or service. It is the maximum amount that the consumer is willing to pay for the good, and it directly measures the benefit that the consumer receives from consuming the good. It is not influenced by external forces such as advertising or the cost to the buyer, nor does it necessarily reflect the consumer surplus that the buyer derives from the purchase.

Question 6

Which of the following events would increase producer surplus?
A)Sellers' costs stay the same and the price of the good increases.
B)Sellers' costs increase and the price of the good stays the same.
C)Sellers' costs increase and the price of the good decreases.
D)All of the above are correct.

Accepted Answer

An increase in the price of the good would increase the amount of revenue received by the seller, which would result in an increase in producer surplus. If sellers' costs stay the same, then the increase in revenue would be all profit.

Question 7

Which of the following will cause a decrease in producer surplus?
A)the imposition of a binding price ceiling in the market
B)an increase in the number of buyers of the good
C)income increases and buyers consider the good to be normal
D)the price of a complement decreases

Accepted Answer

A binding price ceiling would restrict the price of the good, leading to a decrease in the amount of revenue that producers can earn. This reduces the producer surplus. The other choices either have no impact on producer surplus or might increase it. Therefore, A is the correct choice.

Question 8

Willingness to pay
A)measures the value that a buyer places on a good.
B)is the amount a seller actually receives for a good minus the minimum amount the seller is willing to accept.
C)is the maximum amount a buyer is willing to pay minus the minimum amount a seller is willing to accept.
D)is the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.

Accepted Answer

Willingness to pay measures the value that a buyer places on a good.

Question 9

The maximum price that a buyer will pay for a good is called
A)consumer surplus.
B)willingness to pay.
C)equilibrium.
D)efficiency.

Accepted Answer

The maximum price that a buyer is willing to pay for a good is called willingness to pay. Consumer surplus is the difference between the willingness to pay and the actual price paid for a good. Equilibrium is when the quantity demanded and quantity supplied of a good is equal, and efficiency is when resources are allocated in the most optimal way. However, neither equilibrium nor efficiency relate directly to the maximum price a buyer is willing to pay.

Question 10

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples
A)increases, and producer surplus increases.
B)increases, and producer surplus decreases.
C)decreases, and producer surplus increases.
D)decreases, and producer surplus decreases.

Accepted Answer

The announcement by the Surgeon General that eating apples promotes healthy teeth increases the demand for apples. As a result, the equilibrium price of apples will increase. This will lead to an increase in producer surplus due to the higher price. Therefore, option A is the correct answer.

Question 11

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called
A)deadweight loss.
B)willingness to pay.
C)consumer surplus.
D)producer surplus.

Accepted Answer

The maximum amount that Raymond and Victoria are willing to pay for the oil painting is their willingness to pay.

Question 12

Which of the following will cause a decrease in producer surplus?
A)the imposition of a nonbinding price ceiling in the market
B)buyers expect the price of a good to be higher next month
C)the price of a substitute increases
D)income increases and buyers consider the good to be inferior

Accepted Answer

The answer of Which of the following will cause a...

Question 13

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called
A)a resistance price.
B)willingness to pay.
C)consumer surplus.
D)producer surplus.

Accepted Answer

The maximum amount that each person is willing to pay is their willingness to pay, which is the most they are willing to give up in exchange for the video. Choice A is incorrect as "resistance price" is not a commonly used economic term. Choice C, consumer surplus, is the difference between the willingness to pay and the actual price paid, which is unknown in this scenario. Choice D, producer surplus, is not relevant to this scenario as it is the difference between the price received by the producer and the minimum price they would have been willing to accept.

Question 14

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to
A)only existing sellers who now receive higher prices on the pizzas they were already selling.
B)only new sellers who enter the market because of the higher prices.
C)both existing sellers who now receive higher prices on the pizzas they were already selling and new sellers who enter the market because of the higher prices.
D)Producer surplus does not increase; it decreases.

Accepted Answer

The answer of Suppose that the market price for pizzas...

Question 15

ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus?
A)The price of a dozen eggs increases from 40 cents to 55 cents.
B)The price of a dozen eggs increases from 55 cents to 70 cents.
C)The price of a dozen eggs increases from 55 cents to 75 cents.
D)All of these price increases would cause both companies to experience a loss in producer surplus.

Accepted Answer

Both companies will experience an increase in producer surplus when the price of eggs increases above their production cost. Option A would only benefit ABC Company, while XYZ Company would still incur a loss. Option B would benefit ABC Company but not XYZ Company as the increased price would only cover the production cost for ABC Company. Option C is the only option that benefits both companies as the price increase is above the production cost for both companies, resulting in an increase in producer surplus for both. Option D is not correct as both companies would benefit from a price increase above their production cost.

Question 16

Consumer surplus
A)is closely related to the supply curve for a product.
B)is represented by a rectangle on a supply-demand graph when the demand curve is a straight, downward-sloping line.
C)is measured using the demand curve for a product.
D)does not reflect economic well-being in most markets.

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing and able to pay for a product and the actual price they pay. Therefore, it is measured using the demand curve for a product. The shape of the supply curve does not affect consumer surplus, and it is not represented by a rectangle on a supply-demand graph. While it does not reflect economic well-being in all markets, it can be a useful measure of welfare in certain contexts, such as when assessing the impact of policy changes or market interventions.

Question 17

Consumer surplus is
A)the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it.
B)the amount a buyer is willing to pay for a good minus the cost of producing the good.
C)the amount by which the quantity supplied of a good exceeds the quantity demanded of the good.
D)a buyer's willingness to pay for a good plus the price of the good.

Accepted Answer

Consumer surplus is the difference between the maximum price a consumer is willing to pay for a good and the actual price they pay for it. Choice B describes producer surplus, while choice C describes a surplus of the good in the market (i.e. a situation of excess supply). Choice D does not accurately describe consumer surplus.

Question 18

In which of the following circumstances would a buyer be indifferent about buying a good?
A)The amount of consumer surplus the buyer would experience as a result of buying the good is zero.
B)The price of the good is equal to the buyer's willingness to pay for the good.
C)The price of the good is equal to the value the buyer places on the good.
D)All of the above are correct.

Accepted Answer

The answer of In which of the following circumstances would...

Question 19

A demand curve reflects each of the following except the
A)willingness to pay of all buyers in the market.
B)value each buyer in the market places on the good.
C)highest price buyers are willing to pay for each quantity.
D)ability of buyers to obtain the quantity they desire.

Accepted Answer

A demand curve reflects the willingness to pay and value each buyer places on the good, as well as the highest price buyers are willing to pay for each quantity. However, it does not reflect the ability of buyers to obtain the quantity they desire, which is determined by the supply curve and market conditions.

Question 20

Consumer surplus
A)is the amount a buyer pays for a good minus the amount the buyer is willing to pay for it.
B)is represented on a supply-demand graph by the area below the price and above the demand curve.
C)measures the benefit sellers receive from participating in a market.
D)measures the benefit buyers receive from participating in a market.

Accepted Answer

Consumer surplus is the difference between the amount that consumers are willing to pay for a good and the actual price they pay. It is a measure of the benefit that buyers receive from participating in a market. Choice A is actually referring to the buyer's willingness to pay, not consumer surplus. Choice B is referring to producer surplus, not consumer surplus. Choice C is also referring to producer surplus, not consumer surplus.

Quiz 7: Consumers, Producers, and the Efficiency of Markets

Consumer surplus

The welfare of sellers is measured by

When a buyer's willingness to pay for a good is equal to the price of the good, the

Which of the following will cause no change in producer surplus?

A consumer's willingness to pay directly measures

Which of the following events would increase producer surplus?

Which of the following will cause a decrease in producer surplus?

Willingness to pay

The maximum price that a buyer will pay for a good is called

The Surgeon General announces that eating apples promotes healthy teeth. As a result, the equilibrium price of apples

Suppose Raymond and Victoria attend a charity benefit and participate in a silent auction. Each has in mind a maximum amount that he or she will bid for an oil painting by a locally famous artist. This maximum is called

Which of the following will cause a decrease in producer surplus?

Suppose Larry, Moe, and Curly are bidding in an auction for a mint-condition video of Charlie Chaplin's first movie. Each has in mind a maximum amount that he will bid. This maximum is called

Suppose that the market price for pizzas increases. The increase in producer surplus comes from the benefit of the higher prices to

ABC Company incurs a cost of 50 cents to produce a dozen eggs, while XYZ Company incurs a cost of 70 cents to produce a dozen eggs. Which of the following price increases would cause both companies to experience an increase in producer surplus?

Consumer surplus

Consumer surplus is

In which of the following circumstances would a buyer be indifferent about buying a good?

A demand curve reflects each of the following except the

Consumer surplus